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Friday, November 7, 2014

Markets waver after October jobs report

Dow fell 9, advancers over decliners almost 3-2 & NAZ lost 16. The MLP index rebounded 7+ to the 502s & the REIT index was off pennies in the 318s. Junk bond funds were mixed & Treasuries gained. Oil & gold had technical buying after long declines this year.

Unemployment in the US dropped in Oct to the lowest level in 6 years & employers added more than 200K workers to payrolls for a 9th consecutive month as the economy powered past a global slowdown. The
214K increase in employment followed a 256K advance the prior
month that was more than initially estimated, according to the Labor Dept. The jobless rate fell to 5.8%, even as more people entered the labor force, boosting the share of the population working to the highest in 5 years. The
report probably keeps Federal Reserve policy makers on track to raise
interest rates in 2015 even as wages continued to show little momentum. The increase in Oct
employment was broad-based, with factories, construction companies &
retailers among those adding employees. Payrolls at restaurants jumped
41K & hourly earnings for all workers rose less than projected. The forecast called
for a 235K advance in Oct payrolls. The unemployment rate fell to
the lowest since Jul 2008 & is projected to hold at 5.9%. The
share of the population with jobs rose to 59.2% in Oct, the
highest since Jul 2009, from 59% the prior month. Average hourly earnings for all workers rose 0.1% from the prior month. They were up 2% over the past 12 months. The average work week for all
employees increased 6 minutes to 34.6 hours. Private payrolls, which don’t include gov, increased 209K in Oct after a 244K advance. Factories added 15K workers after a 9K gain in Sep. Construction companies took on 12K workers. Employment
at private service providers rose 181K, including a
52K gain in the leisure & hospitality industry that reflected more
hiring at eating establishments. The underemployment rate, which includes part-time workers who’d prefer a full-time
position & people who want to work but have given up looking,
declined to 11.5%, the lowest since Sep 2008, from 11.8%.

China's trust assets grew the least
since 2010 in Q3 as regulators tried to limit
shadow banking risks & investors grew more wary of defaults. Trust companies’ assets under management climbed 3.8% to 12.9T yuan ($2.1T) as of Sep 30
from 3 months earlier, the China Trustee Association said. Gov efforts to control shadow banking are sapping
momentum from an economy that expanded in Q3 at
the slowest pace since 2009. China had 397 “risky” trust
products valued at 82.4B yuan as of Sep, down from 91.7B yuan 3 months earlier. Moody’s warned last month that
significant risks remain in the $6.2T shadow banking
industry after delayed payments & last-minute bailouts of
trust products. Today’s report showed that the 68 trust firms
had net assets of 288B yuan, suggesting a limited ability
to shoulder any implicit guarantee for their products. The pool of trust assets has swelled more than 500%
in less than 5 years. China averted its first trust default
in Jan as investors in a 3B-yuan product issued by
China Credit Trust were bailed out days before it matured. Trust products’ average yield rose to 7.92% in Q3 from 6.87% 3 months earlier. Trust companies sold 15K products
in the first 9 months of 2014, up slightly from a year
earlier. Combined profits at China’s trust companies rose 11.4% to 43.4B yuan for the first 9 months of this
year.

German industrial production rebounded less than forecast in Sep, signaling
that Europe's largest economy is struggling to recover. Production, adjusted for seasonal swings, rose 1.4%
from Aug, when it contracted a revised 3.1%, the
biggest decline since Jan 2009, the Economy Ministry said. Economists predicted a 2% increase in output. Production declined
0.4% in Q3. Germany's economy contracted in Q2 as
political tensions with Russia sapped exports & weighed on
confidence. Its return to growth is key to shore up a euro-area
recovery that the ECB supports with asset
purchases & long-term loans. Manufacturing output increased 1.7% after dropping 4.2% in Aug, with production of
investment goods up 4.5%. “Momentum in the industry is constrained by a continuously
difficult international environment,” the economy ministry
said. “There are no noteworthy impulses in the short term.” At the same time, exports surged 5.5% in Sep
from the previous month, marking the biggest increase since May
2010.

The jobs report was pretty much a non-event. The news was fairly good & that was already baked into the markets. The data was less than spectacular, just good enough to keep the bulls happy. This weekend, traders will have more time to evaluate the jobs data & think about where DC is going, which looks to be running nowhere fast. Immigration reform is a top priority & the 2 sides are far apart.